Professional Documents
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Preface
The course of Professor Exler shall provide an overview about the fundamental un-
derstanding of how Mergers and Acquisitions processes are working with the
steps of enterprise evaluation, Letter of Intent, Due Diligence and finalization the
contracts.
On a long term perspective companies have to increase the profitability over the
capital costs. Which means the Return on Capital Employed (ROCE) should be
higher than the capital costs according Weighted Average Cost of Capital (WACC).
The value management-concept is at the moment “State of the Art” in the context of
stock listed companies.
The company needs instruments for financial restructuring like a capital increase,
divestments with fixed assets, reduction of current assets, reduction of personal and
material costs etc. Corporate restructuring could mean debt restructuring or selling
the shares according the guidelines of an M&A-process with a Management buy-Out
or with an involvement of a strategic or finance investor. An alternative solution is an
Initial Public Offering (IPO).
The lessons of Dr. Exler are structured with a mix of theoretical input and preparing
case studies with group discussions. The case studies are real business cases out
of the consulting work from the lecturer. This document is based on a modular sys-
tem with the content of financial analysis, corporate restructuring and Mergers &
Acquisitions. Looking forward of a constructive dialogue during the lessons.
Contents
Case Study
DCC, plc, Ireland / Reha GmbH, Germany
1. Revenue 14,393
2. Increase or decrease in finished goods inventories and work in process 0
3. Total revenue 14,393
4. Other income 22
5. Cost of materials
a. Cost of raw materials, consumables and supplies and of purchased merchandise 8,835
b. Cost of purchased services 37
6. Staff costs
a. Wages and salaries 857
b. Social security and pension expenses 161
7. Depreciation, amortization and impairment losses 129
8. Other operating expenses
a. Ordinary operating expenses 3,120
b. Losses of impairment and of reduction current assets 85
c. Expenses special item with an equity portion 300
9. Financial income 8
10. Finance costs 157
11. Income from continuing operations before tax 742
12. Taxes on income 98
13. Other taxes 2
14. Net income 642
Case Study 1
Financial Analysis
DCC, plc, Ireland / Reha GmbH, Germany
Profit analysis
2. Interpretation of correlation cost of materials and total revenue.
3. What ratios are useful about improvement in productivity?
4. What are the reasons about financial costs?
5. Is the company profitable?
Profitability
13. Development of Return on equity (ROE)?
14. Development of Return on Investment (ROI)? (2)
Debt
15. How do you judge the debt and interest situation? (4)
16. Development of Working Capital? (5)
I. Financial analysis 1 2 3 4 5 6 7 8
Rating criterions
Score 1 2 3 4 5 6 7 8
AAA AA+ bis AA- A+ bis A- BBB+ bis BBB- BB+ bis BB- B+ bis B- CCC+ bis C- DDD bis D
Interest
without 0.6 % 1.6 % 3.8 % 5.5 % No Credit!
increase
Case Study 2
Enterprise Valuation
DCC, plc, Ireland / Reha GmbH, Germany
The estimated operative cash flows are 1,851 T€ (1st year), 1,893 T€ (2nd year),
1,936 T€ (3rd year), 1,979 T€ (4th year) and 2,024 T€ (5th year). The residual
value for the Terminal Value should be announced with 80 %. The investment
amount are the depreciations of 250 T€ each period.
Discount rate
3. What are the capital costs after tax, the Weighted Average Cost of Capital
(WACC)?
Net debt
4. What are the amounts of interest driven liabilities (bank liabilities) and cash &
cash equivalents?
Equity value
5. Which enterprise value follows from the “Discounted Cash flow-Method” (DCF)?
Financial ratios
- Additional investments
- Working Capital
Case Study 3
Value Management-Concept
DCC, plc, Ireland / Reha GmbH, Germany
Investment project
1. The managing director has to check an investment alternative, a business build-
ing in a business park area. The bank offers a bank loan to the amount of 1.8 m
€ with an annual interest rate of 5.8 % and a credit duration of 12 years.
The budgeted conditions of bank loan are consolidated in the actual financial
statement.
The evaluation of the project should be prepared with the additional abso-
lute value added (cash value added, CVA). Relative value added is the dif-
ference between operating return (ROCE) and capital costs (WACC). Abso-
lute value added is the multiplication with the capital employed results.
The pure operating return are reflected by the return on capital employed
(ROCE). The ROCE is calculated by dividing the adjusted operating result
(NOPAT) by capital employed (NOA).
The capital costs after tax should be calculated with the weighted average
cost of capital (WACC).
(6), (7) and (8) are additional rating criterions “value management” in the ad-
visory report
Operating result
2. The adjusted net operating profit after tax (NOPAT) is the income from operating
activities and income from investments, excluding income from non-operating
result and imputed cost categories.
Capital employed
3. Net operating assets (NOA) consists of the positions intangible assets, property,
plant and equipment, trade accounts receivable, other assets, prepaid ex-
penses, but excluding non-interest-bearing provisions, non-interest-bearing li-
abilities and non-interest-bearing other liabilities, plus adjustments to average
capital employed.
Note: www.sternstewart.com
Case Study 4
Transaction of DCC plc, Ireland / Reha GmbH, Germany
I. Information period
(1) First contact
(2) Product and market analysis
(3) Financial analysis
(4) First purchase price indication
(5) M&A advisory agreement